Question

If the Fed lowers the required reserve ratio, __________ in the banking system will remain unchanged but __________ will rise. This will (likely) lead to an increase in new loans and checkable deposits and a(n) __________ in the money supply.

Answer 1

Answer:

Reserves; excess reserves; increase.

Explanation:

If the Fed lowers the required reserve ratio, reserves in the banking system will remain unchanged but excess reserves will rise. This will (likely) lead to an increase in new loans and checkable deposits and an increase in the money supply because the banks would be willing to give out money as loans or mortgages to interested individuals.

The Federal Reserve System popularly known as the Fed was established by the U.S Congress on the 23rd of December, 1913 under the Federal Reserve Act. The Fed is the central bank of the United States of America. Generally, it comprises of twelve (12) Federal Reserve Bank regionally across the United States of America.

banks in order to put a definitive end to the bank panics of the 1800s.

The Federal Reserve Bank is a government agency that is saddled with the following responsibilities;

1. To control the issuance of currency in United States of America (it promotes public goals such as economic growth, low inflation, and the smooth operation of financial markets).

2. To provide banking services to all the commercial banks in the country (the Federal Reserve is the "lender of last resort).

3. To regulate banking activities (it has the power to supervise and regulate banks).